I wrote earlier about Outlaw's new 990 audio processor, and was left with a few questions. They've since posted a FAQ that not only answers my questions, but also provides rare public insight into industry practices for cross-company parts sharing. Audio is a lot like the automobile industry - creating a platform is enormously expensive, and companies often share development to keep costs down. Sure, there are a few boutiques that create everything themselves from scratch, but custom efforts are enormously expensive, limiting the potential market size.
Outlaw uses the three different models shown below for product development, and so do all the other specialty brands to one degree or another, regardless of their distribution model. The selection of which development path to use is determined by the specific product, its cost, complexity and its anticipated volume. Going back to our first offering, the Model 750 amplifier, we have never hidden our relationships with some of the industry's leading manufacturers. Remember that out process is not unique, and only a few of the "major" brands actually design and manufacture their own processors from the ground up. We know of no company in the "internet only" market that totally designs and builds all of their processors on their own.
The FAQ continues to describe which of its products were designed, manufactured, licensed out, or licensed in. Outlaw exclusively sells direct online; I don't know if that completely explains their openness. But they are hardly alone, and got me thinking of some other common business models:
- Brand A designs, someone else manufactures for Brand A. Very few - if any - of today's manufacturers actually manufacture everything they sell. In some cases, a company will manufacture one type of product, but not others. For example, Sony manufacturers most of its TV sets, but practically none of its headphones.
- Brand A designs and then its design is "sublet" to Brand B to defray costs. Brand B rebadges the design with mostly cosmetic changes and sells it as its own. This has long been the way most vendors obtain their universal remote controls, but it happens in high end audio whenever a vendor specializes in one component but needs to offer retailers a complete product line to get distribution. For example, Lexicon has been rebadging Bryston amplifiers for years.
- Brand A designs the core chassis (in the case of a processor or receiver), core technology (in the case of MP3 players and digital cameras) or driver/crossover (in the case of speakers), and Brand B rebadges it with changes. These changes can be cosmetic, substantive, or both. For example, most MP3 players - including the iPod - are based on chips from PortalPlayer. Companies can use PortalPlayer's software (technically "firmware," in this case), use just some of it, or write their own from scratch.
- Brand A and Brand B share development costs on the core technologies, then customize the surrounding technologies for differentiation. Examples here include Sony and Samsung's jointly owned LCD fabrication plants; LG and Philips have joint ventures in plasma TV manufacturing. But in each case, the video processing, scaling, types of inputs, and case design are all different, leading to different performance characteristics and pricing.